Revenue/day = 1,600,000/365 = 4383.56 Receivables = 260,000 Collection period (current) = 260,000/4383.56 = 59.31 Reducing this to 40 days will raise 4383.56 x (59.31 – 30) = 128,482 (ie 128,500 when rounded)
Purchases/day = 1,375,000/365 = 3767.12 (assuming inventory is level) Payables = 75,000 Payables days = 75,000/3767.12 = 19.91
If increased to 40 days, additional cash would be retained amounting to
3767.12 x (40 – 19.91) = 75,681 (which I assume is rounded to 75,500)